Get ready for a fresh slide in British house prices

Prices have fallen in many regions, and by and large are still well down on their pre-crash peak.

But with the Bank of England keeping the market artificially propped up with low interest rates, house prices are still well out of line with incomes.

Nowhere is this clearer than in London. Property prices in the capital are in many areas back to their peak prices, or even higher.

This shouldn’t come as a surprise. No sector of the economy has benefited more from bailouts and quantitative easing (QE) than the City. Banks have been shielded from much of the economic pain as bonuses continued to flow.

But times are changing. Life is getting much tougher for the banks. And that could trigger a long-awaited correction in London property.

As the City is squeezed, expect London property prices to fall

It seems that the pain being suffered by the ‘real’ economy is finally starting to make itself felt in the financial industry. Investment bank UBS recently announced it will cut 10,000 jobs worldwide, many of them in London. And this is only the start.

The Centre for Economics and Business Research (CEBR) thinks a further 12,476 financial sector jobs will be lost next year, with more to come. The fact is, with investors rattled and paralysed by fear, there’s just not enough work to go around.

“Equity trading is down 20% in value year on year; gilts trading is down by a third, currency trading is down 5% this year – the first fall since 2009. Merger activity is down by a third in the UK, and even more worldwide. Even the formerly dominant derivatives sector is also down by around a fifth so far this year”.

The bonus bonanza days are gone too. The surviving bankers will earn less, with bonuses set to come in at just 15% of the level they hit at the peak in 2006.

We’re not saying that any of this is bad news. Before the crisis, the financial sector grew far too dominant on the back of cheap credit. Shrinking the City is a key step in getting back to having a more balanced economy.

But like it or not, this is going to have a big impact on London’s economy. The CEBR has cut its estimates for London’s growth to just 0.2% this year and 1.1% in 2013.

It also means that there will be fewer massively wealthy individuals looking to stick big bonuses into London flats and homes. And we could already be starting to see the effect of that.

If you just look at the big house price indices on an annual basis, then the capital still seems to be doing well. According to Nationwide, London prices are up 2.1% year-on-year, making it the best-performing region in the country. The Office for National Statistics (ONS) reckons the rise is even stronger, at 5.2%.

However, the trend is turning. On a quarterly basis, Nationwide estimates that prices have fallen by 0.4%, which leaves London one of the more poorly-performing areas.

And according to the ONS, prices fell by 1.2% in September, and are now at their lowest since June. That compares to a 0.2% fall for the UK as a whole.

There are also signs of wobbles in the rental market. Rents have risen by a third since 2009. But estate agent Knight Frank says that prices at the top end of the market (£500 a week or more) are starting to decline.

Inflation is crushing the consumer

With the City under pressure, we suspect this is just the start of a longer-term slide. But it’s not just London that’s feeling the pain. The national market is also looking weak.

This summer there was a dramatic drop in new mortgage lending. Bank of England data shows that the total value of lending secured against housing is down nearly 10% on the start of the year. The number of loans being written each month is down 13.1% (16.5%, if you exclude remortgaging).

Given the state of the UK economy, it’s a wonder the market has been holding up at all. The latest data suggests that the Olympics-inspired rebound that we saw in the third quarter won’t last.

Consumer confidence remains low, and fell further in October. Activity in the services sector is at its weakest since December 2010 – it’s still growing, but only just. And retail sales data out yesterday was awful – down 0.8% in October, far worse than expected. Mervyn King, the Bank of England governor, is now warning of a potential ‘triple dip’ recession.

There’s a clear culprit for all this – inflation. Even judged by the official measure, inflation rose by 2.7% in September. This remains well above average pay rises. So most people are still seeing their income fall in real terms (ie their wages buy less today than they did last year). With credit tight too, there’s simply no money available to spend. Yet the Bank of England is emphasising that it might do more QE, which would only make this worse.

With consumers squeezed between falling wage packets and tougher credit conditions, it’s hard to see how house prices can be sustained at current levels. With London weakening now too, a fresh slide could be on the cards for 2013. As for Britain’s economy in general, we think there could be much tougher times ahead. You can read why in the latest issue of MoneyWeek magazine, out today. If you’re not already a subscriber, get your first three copies free here.

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Erik

Interesting comment re house prices. What about the real centre of London (Chelsea, Kensington,etc) ? Prices went through the roof mainly because of foreign investors not because of bankers with bonuses.

HL

Of course house prices must fall in Britain. Check out what is available in Florida or California for the same price as a cramped little semi over here.

QED

crazy tony

Cant see a fall myself. Interest rates are unbelievably low. There will be no forced repossessions, whilst the banks are owned by the state. A few friends with money in the bank are considering buying a few buy to lets because the rental income is so much better than what you can get for holding money on deposit.

House prices may wobble 1-2% up and down; but a fall no.

Flynn

Whilst I really want to believe the article, Moneyweek (and I!) have been predicting an apocalypse in the property market for years now and it has not materialised. The Funding for Lending scheme has dramatically lowered mortage rates and the British national sport is overpaying for houses using borrowed money. Perhaps we’ll have an interest rate rise or two over the next year in a desperate rearguard attempt to restore the BoE’s credibility: in the absence of this I don’t see a crash.

Orb

In line with Erik @1’s thoughts, it might be prudent for MoneyWeek journalists to distinguish between the mortgaged property market of British ‘ordinary folk’ and the overseas cash investors’ property market.

If there were a ‘£-index’ as there is a ‘$-index’, I suspect we’d have seen a decline of up to 45% of the ‘Great’ British Pound.

And we have a relatively stable political environment to boot – hardly a privilege to boast of in the Middle East just now?

Ryan Edwards

Bankers bonus are down to 15 percent level compared to 2006? If only this were true…. Sadly most of the bankers I know are still receiving bonues roughly at the same levels as before the crisis.

Dr Gambler

Any danger of moneyweek discussing property outside London? By that I mean the whole country not Kent and Hertfordshire!

Been subscribing for a few months now and the London bias is a critique that can be levelled at much of the magazine. It is acceptable to a point.

barrowsj

you have to wonder at the brain power (or lack of) of Merv and pals. If inflation continually runs ahead of wage increases (as it has been doing now for around 4 years) the net effect is that people are getting poorer. How is this policy of stoking inflation (through repeated QE weakening the currency) supposed to kick start the economy, particularly when consumption is around 65% of GDP? They really can’t see the wood for the trees

JimboInnis

Obviously any hit to the City will impact house prices, but I think this argument is very overblown. In my area of South London (the very up and coming Brixton) house prices have risen by over 20% in the last 2 years. This is not because of bankers or Russian oligarchs, but rather a combination of diversely employed young professionals, parents looking for a safe investment and a place to put their teenagers, and young families being attracted to a relatively cheap area. If house prices do correct here it will be for other reasons than the ones that Money Weeks have been repeating for the last few months.

Tim W

I agree with 3. Crazy Tony, the BoE have made their stand on house prices pretty clear. They will keep interest rates low and keep printing money at whatever rate is necessary to ensure that large-scale reposessions don’t happen (the only thing that will really send house prices tumbling).

Nick

It’s all down to QE. How much longer can they support this fake economy. Bubble economics house prices have a shelf life, and it’s far too big a gamble for me to get involved yet.

Ellen

The government like high house prices for ‘feel good’ votes. However, the BoE have a different angle. The ‘liquidity’ crisis of 2008, which prompted ZIRP and QE, was really more of a ‘solvency’ problem – if you believe the then house prices in 2008 were entirely based on banks lending to anyone who wanted money. And some people were prepared to pay ridiculous amounts on houses believing prices would never go down…

It’s difficult to know what sort of shape the banks are in now but all monetary policy over the past few years had the sole purpose of shoring up the banks – at everyone else’s expense.

When the banks’ position is secure and their loan book is looking more manageable, we have to see a considerable slide in house prices as the MPC/ BoE can get back to the job they are supposed to be doing – managing inflation.

MrRee

To be brutally honest – if the Housing Market didn’t collapse in 2008/2009 at the height of the most worrying financial times since the 1930’s ……. it isn’t going to!

Stagnant House Prices is all we will see – of course that is a real drop due to inflation ….. only this stagnation will, over decades, bring House Prices in line with the Earnings Ratio we all like to mention.

Will Hicks

I’m really surprised MW keeps writing about the collapse of UK Property prices. They’ve been consistently proved wrong for at least 10 year, first with Merryn then later with less believable individuals. Why they insist on treating it as a “market” is nut’s, as it’s clearly been rigged for years now.

Agent Immo

The housing market…ho,ho,ho…as others have pointed out. It is a rigged game by the BoE and Govt. The losers are savers and those that bought after 2006. Who will be wiped out once the BoE decide the game is over. ie. when their rich friends have moved into other assets.

For all those saying the market will not crash. Many said the same about the Tech market in 1999. Tulips from Amsterdam, mes amis………..

Call Me R D

You afford TPTB too much credit Agent Immo.

Fortuitous good fortune is the order of the day given their inability to organise the proverbial in a brewery.

The best place for Mervyn is on the stage. Maybe at the Apollo theatre Hammersmith (it will appeal to his penchant of thinking himself as an oracle).

He can perfect his zig zag gag on a nightly basis with a matinee performance on the traditional day of rest for the bankers of this world.

Roberto Birquet

Where on Earth is Mr Donut? I was expecting a volley of derision, a cascading of cold water on any rationale to the article!

Roberto Birquet

Will Hicks 14. Proved wrong for 10 years? Really?You do know that prices are at 2004 levels (even including the bouoyancy effect from central London). And that is despite: record low emergency interest rates; banks refusing to repossess even with one in eight mortgages behind on payments; government guaranteeing this useless economic policy; money printing; and volume sales down by half.

All the above has meant that we have a zombie housing market. Why? People are no longer able to pay the bubble prices (bubble credit lines gone); sellers refuse to sell (they remain attached to idea of 2007 bubble price); and banks are not allowing the market to work (by not selling repossessed homes to highest bidder). Does refusing to sell mean the market price is maintained? According to which economist?This government has blown its chance to deal with this: far more important than the deficit to the economy. A zombie housing market is no good to anyone except landlords.

Roberto Birquet

MrReeif the Housing Market didn’t collapse in 2008/09 at the height of the most worrying financial times since the 1930s … it isn’t going to!———————–Prices fell 20% in 2008/9, and in the area I lived – east London, zone 3, by 30%.It was the policy of using our taxes to bail out banks, and allow them not to repossess – when the market was screaming at them to do so – that stopped the fall. Nationally speaking, prices bounced to regain half the fall, and have been falling slowly and with v low volumes ever since.Central London is a different planet. A lot of it’s foreign rich parking their wealth. It could be a Mayfair mansion, or a Matisse. It’s not credit dependent – the normal housing requirement.Simple rule of economics. Demand cannot exceed the supply of money – same for all assets/products. You may be willing to pay £500K for a pad, but without the reddies, that means zip. Two stupid govts, and a useless Governor.

D

I don’t see prices falling in South West London and Surrey. Houses are sold in one day. Some houses get 10 asking price offers and sometimes even higher if someone wants to secure a property. I am really strugling to find something, so many times viewings are canceled because of properties being sold in couple of days. Interest rate is too low for prices to fall. I like to ask why a vendor is selling; most properties are sold because of divorce or lack of space after more children are born.

Phil

Sorry MoneyWeek, but as always your predictions and analysis of the London property market are wide of the mark, for the reasons that many of the previous commentators above have explained.

While sterling is weak and BoE rates are low, London prices will continue to rise or at least remain firm.

While, there may be falls in the £2m+ ‘trophy’ houses, over the next few years the market for £300-600K flats will be where the real action is, as wealthy young professionals from Russia and the Far East continue to stream into central and East London.

Recent falls of half a percent do not make a crash, particularly in the context of price rises of at least 300% over the past 10 years.

You should be as bullish on London property prices as you are on gold, and with the same strategy: buy in the dips, hold long term.

Paul

#3/#4 – I tend to agree… it’s all about how much currency destruction they’re prepared to accept to levitate house prices to save the banks. It seems to me they’re prepared to go all in – only the market and a complete rout of confidence could overwhelm them. Significantly lower house prices, whilst hurting a few, would lead to a huge boost to the economy if you think it through the right way round. People could afford houses again, without requiring more than one person and they’d be saddled with less debt. Their savings are the real capital we need to grow. But it requires extraordinarily sharp pain, and no politician will do it. With fractional reserve banking, banks being allowed to collapse would wipe out so many bank account. Even if it happened, civil unrest would result in either the government supplying newly printed money, even if it meant printing it for real and delivering it to where the queues are. Any government refusing, would be thrown out by an ignorant public.

Paul

#8 – That is precisely the plan. I remember reading the minutes from an MPC meeting where they discussed the need for negative real interest rates of 7% (yes 7%!) for 10 years, to halve the debt and make it more sustainable. Problem is, even if they could maintain that and keep it under control, which is highly unlikely, it would halve our standard of living and the value of everyone’s savings. It’s not a lack of brain power, it’s a totally false and ridiculous philosophy of economics. These people are so obsessed with the detail of the bark they don’t even know trees exist! They seem unable to comprehend one simple fact… before you can eat a fish you have to catch it! They and their audience have fallen for the broken window fallacy and now everyone just thinks about what is seen and not what is unseen.

Hutch

I think the value and price of houses are two different things, since price in this case is measured in a fiat currency. If you look at house prices with a real measure of value (gold) they have already been crashing. Puts a different spin on this whole argument! Difficult to say what’s going to happen with house prices with so many factors, but house value is at lowest point in 30 yrs.

Romford Dave

Real measure of value?

Explain that to the man who sold his house in 1980 and converted his bricks and mortar into the perennial favourite of alchemists everywhere.

How surprised was he when after two decades of homelessness he decided to convert that golden store of wealth into a home again, only to find that bricks and mortar were no longer in reach, leaving the purchase of just some thin flappy canvas to protect him from the big bad wolf.

The ancient relic is only valuable as long as someone is willing to put an ever inflated value on it. On its plus side, and given the continuing worldwide predilection for ancient religious fervour, the bubble could be driven upwards for sometime yet by latter day converts, bereft of any other faith based money system.

Boris MacDonut

#17 Roberto. I do not need to join in here. The chorus of derision is sufficient. John is so wide of the mark,it can’t just be ignorance, this must be a deliberate attempt to misguide readers.To suggest bonuses will be at 15% of the £18 billion reached in 2006 (i.e only £2.7 billion) is laughable.Interest rates were not reduced to near zero to help the housing market. They were reduced in line with the USA, Canada, Europe and so on to stimulate some growth. 1,930 days ago the credit crunch bit and MW has been consistently wrong about the massive crash. Mervyn is right- Merrryn is wrong, particularly to have sold her lovely London house which would now be 22% higher in value.

Boris MacDonut

#26Apologies to John. The article is by Matthew.I should have guessed by the incorrect statistics. The CML says lending is up 13%. Sales are up 9%. Prices are static and only falling in Scotland and N Ireland. In London 70% of houses over £1million (nearly 2,000 a year) are bought by the foreign rich, of whom there are increasing numbers. 300,000 Russians and an equal number of rich Chinese now live in London, along with many rich Arabs, Greeks etc. The relevance of UK Bank bonuses has more to do with the US as many of our senior bankers are Yanks.The funding for lending scheme now has £60billion more for house purchases and rates are about to go even lower. It costs the same to borrow £175,000 today as it did to borrow £145,000 in 2005. The cost of buying a house has fallen by 20%. #18 Roberto, you mean in 2004 prices had prematurely hit 2012 levels due to a bubble.They are now back to long term norms and rates are unlikely to rise for 5 years. Go on,buy a house.

NeutronWarp9

Statistics are largely meaningless because any moron can cherry-pick one set of figures over a given time-frame and ignore others that suggest a different conclusion over a shorter or longer range. Matthew is of course stating the obvious: real incomes are falling and interest rates cannot stay at these historically low levels for the full term of a typical mortgage – a tad more than 5 years, I suggest. Plus borrowing conditions are much more onerous than pre-2008. Therefore, in the real world inhabited by real people (not Chinese, Greek or Russian ‘elites’) the UK housing market is getting a reality check and only a fool would argue different. Of course, it won’t stop them trying…

Boris MacDonut

#28 Neutron seeking to defend the indefensible again.Saying statistics are meaningless but you can predict the future makes you seem just like the fools you point at. House prices are now 2% above their long term average. That is the 25 year cost of buying a house with a mortgage (since 1960). When BOE interest rates rise back to previous norms say 3 or 4% in about 8 or 9 years time, the mortgage rate may rise to say 5 or even 6%. Back to the base rate plus about 35% that used to pertain. Now we have 0.5% base and 4% mortgages. From 1960 to 2008 the Mortgage rate was about 35% higher so a 5% base gave a 6.75% mortgage rate. Houses are very affordable, buy one.

Ellen

Boris, you’ve just told both Roberto and Neutron to ‘buy a house’?

In the end everything is measured against what the consumer can pay for and how badly they need it. It’s why shops that sell expensive candles don’t survive recessions and why pound shops thrive.

But, I guess, that has been your argument all along. Everyone needs housing. But you don’t seem to get that the cost of housing is so high, a great deal of people are dedicating their whole lives servicing debt for the roof over their head.

And ‘averages’ and ‘medians’ are two separate things. Where society is becoming increasingly unequal, you would do well to downplay averages.

Boris MacDonut

#30 Ellen.You don’t seem to read my posts. If you did you would be acquanted with my oft repeated mantra. UK housing is not expensive.It is almost exactly the same cost relative to typical incomes as it has been for the last 50 years. I jest with those who make out it is expensive by reminding them it is now at its cheapest for nearly a decade.I simply do not accept that housing is anymore expensive now than in 2002,1992,1982.It was always a struggle.Also,houses are bought by the richest 66% of people, so medians are irrelevant and averages very much are.

Ellen

yes Boris. And are ‘”Typical” incomes as they have been for the last 50 years based on median or average income?

That’s not really a question.

Paul

#31 – I don’t think house prices are at fair value by any historical measure but let’s just assume they are. It’s with historically low interest rates and other schemes to prevent mortgage defaults. Where would they be if the free market and liberty were allowed to function and interest rates were set by the market… by the availability of savings instead of being stolen from the holders of currency and those on fixed incomes? Regardless of how fair you think they are over the long haul, they should be a lot, lot lower now. Prices (and values) are all relative. To the deflationists… we have the worst recession since the great depression and prices are rising!! There are no free markets any more…just intervention after intervention after intervention… hollowing out the real economy by preventing the one true regulator…failure. Houses may be cheap when measured against a real numéraire, like gold, but unfortunately we all earn and are forced, by law, to use sterling.

Paul

#25 – gold has been shown to be the most stable measure over the long haul. See Prof. R Jastram’s “The golden constant” measuring prices in gold since 1560 to 1976. Every opponent of gold always trots out the “since 1980….” line. It’s like a talking point that’s never addressed. Prior to 1971 gold was overtly manipulated by the London Gold Pool. When that failed in 1968 it led to the US gold default of 1971. The free market took over and the price shot up… eventually it became a bubble because of inflation concerns of the 70s. The decline after 1980 started from a bubble high.

Paul

#25 – cont… As the price collapsed back to a more sustainble level, major miners hedged their positions using derivatives and forward sales, forcing the price down further. The boom which came after Volker’s recession and the new era of financial alchemy resulted in central banks leasing gold to bullion banks (which sold it into the market) so they could earn a spread on treasuries. It was the first time the world abandoned gold in one fell swoop due to the gold exchange standard. It was a unique time and a blip in the story of gold’s store of wealth.

Boris MacDonut

#32 Ellen I am at a total loss to understand this. I use the term typical income to seperate house buyers from the median and average incomes. As I say average people do not buy houses ,the richest 66% do. We need to look at the “average” income of the richest two thirds(not salary or wage but income).The ration of cost to income is only 2% above the long term norm since 1960. Something that costs 2% more than usual is not “expensive” however much you wish it were.#33 Paul,oops. Mortgage rates are a free market .That is why with a base rate of 0.5% we are charged anything between 2.5%(lucky me) and 6% (unlucky FTB). C’est la vie , that is how our cookie has crumbled and before any UKIP mouth breather accuses me of smugness, I am far more pleased with myself for not being born in 1898 or 1923 and being shot at by the Germans while eating corned beef from a tin. In the words of UB40 “i’m an accident of birth”.

Romford Dave

/>I’ve even employed the strategy as a hedge myself, (gold that is, having already secured the get out of hell card with just a few simple words).

But it’s an act of faith to place your trust in God or in the price of an ounce, given that there’s no guarantee with either.

Zealots would argue otherwise but then that’s been the case for millennia. The reality is gold only has the value that mankind places upon it, and no one is more fickle than man.

What price each ounce if circumstances prevailed where one man owned all the gold?

And would anyone really care?

Ellen

@36 Boris. Even my personal experience is in total opposition to your assertions. In 1990 I was a 24 year old part qualified accountant earning £23000 when I bought a 2 bed house for £60k and sold it eight years later for £95K. According to Zoopla that same house was sold in 2010 for £270K. How many single, unqualified young women in their mid twenties in London could afford to buy this house today? There were plenty of us around in the early 1990s.

The gulf between the rich and the working person in this country and across the western world is so huge, it is ridiculous to give relevance to ‘averages’ among them. That’s why the median is more relevant as it deals with numbers of people.

Boris MacDonut

#38 Ellen. The distribution of money is not relevant unless it gets too extreme. History has seen some corrections to this. The same amount of money chases the same number of houses even if it means some rich types buy 2 or 3 each.Your experience is not average as £61k was the national average HP in 1990 and today it is not £270k. Perhaps the house has been improved or the area has been gentrified by accountants, either way it is not the same house. The cost of a £61k house bought on an 85% mortgae in 1990 was £150k over 25 years,with average income at £15,200 that gave a ratio of 9.85 to 1. An average house today is around £190k. on an 85% mortgage it would cost £270k over 25 years. Average income is about £32,000 a ratio of 8.40 to 1. Even if HP and income are actually 10% less the ratio is the same …15% lower than 20 years ago.

Boris MacDonut

Ellen and many others suffer from the common problem of believing they live in uniquely difficult times. We don’t. Ask any generation and they will tell you they had it unusually tough. Some did, others didn’t but still thought they did. The sooner folk realise we are not special and just face slightly different problems the better. We are not heading for a terrible crash. No armageddon scenario, just a few years of modest or static growth.Oh, and the long term ratio of 25 year cost to income for 85% mortgages is 8.2, so there is be some truth in the cries of overpriced housing, it is in the region of 3%

Manabana

Pop-u-lat-ion increase more people more demand…prices go up…more demand, supply not changing its economics pure and simple. There’s huge demand for living space in London and supply is hard to find, stop flogging the hp crash MW. It ain’t happened yet and it ain’t going to happen whilst the government will keep Interest rates rigged people will hold on to their quality houses and the rest of us will fight over the scraps.

Paul

#37 – Dave… That’s funny and your point is well made. Being wed to one asset class is very risky. If I sound like an evangelist, it’s by accident really… in response to the general ignorance of the monetary system from both “experts” and lay people. My argument is just a counterpoint to the conventional wisdom of holding your wealth in what I believe is the most dangerous medium – irredeemable fiduciary currency units and the much more powerful and pervasive religion of house buying in the UK.

Paul

#38 – Agreed. I watched a house selling for £18K back in 2002 sell for £67K, just four years later! But… I can’t see a moneyweek crash because I think the authorities at the behest of the banks will do anything to arrest a decline. If that means destroying our money and savings… no problem. If that means nationalising mortages… no problem. Values be damned, prices are all that matters to keep the illusion going. The only thing at this point that can derail this madness is the market itself and since most people are brainwashed into spending most of their earnings to get on the housing ladder, that possiblity seems remote currently.

Paul

#40 – Boris… Many generations had it tough yes, and this time will be no different, it’s just much more severe imho. We’re close to an end-game of fiat currency (rinse and repeat), this time globally. There have been 41 currency collapses in the last 100 years (See Peter Bernholz). The maths doesn’t work out at 0.5% interest rates. And even if it did the capital structure is being totally corroded and destroyed. People are sitting ducks. And regardless of how alice in wonderland, pro-house buying forces are at this point, houses are ultimately a function of affordability and we’re losing value at a shocking pace. The die has been cast. The only real variable seems to be how slow and how orderly it comes to fruition.

rupert

The London property market is on fire. It does not look like cooling down any time soon. Predictions of a house price crash have been around for many years now. Too many people chasing too few properties in London = higher prices.

Boris MacDonut

#44 Paul. There you go. I refer you back to post 40. You think your generation is more important and more uniquely beset on all sides. You have no reference point other than your original false expectations, but they do not make you special.

Paul

#46 – How do you know which generation I belong to!?

It’s pretty clear from my comments that I believe that what is happening is the cycle of history. It’s happened 1000s of times before, literally. So my view is simply aligned with history repeating/rhyming albeit in a slightly different fashion given that the world has never before had a monetary fiction that is truly global. Our monetary system’s uniqueness in history is simply an objective fact. It has nothing to do with any generation.

Your view on the other hand seems to be that, for no particular reason at all, this time it won’t happen! Since 99% of people are totally unaware of monetary history, I’d like to know how we’re going to avoid it?

Paul

#46 … further to that, I’ve just realised that by “generation” you must have meant anyone who is alive now rather a single 20 year “generation” within a human lifespan. If that is the case, ignore my question!

Boris MacDonut

#47 Paul .You are the child of your parents generation and the grandchild of their parents. You are also the father of your kid’s generation and trust me they, in turn, will feel uniquely hard done by. A great example was that crazy goal against England last week…..lauded as the best ever. Good yes , but clearly not the best ever. Yet the sports journalists were heavily influenced by the most recent event. Soon there will be nobody left alive who (so say) walked on the moon. Will we then change our opinion of that major event?

Paul

#49 – I understand what you’re saying – even back in the middle ages people complained and warned about the degeneration of the youth! Nothing changes, not really. I think that is probably why the Kondratieff super-cycle spans one human lifespan. By the time it’s over, no-one is left to remember the beginning. But that reinforces my view. The only difference now is we have a mass communication tool. It doesn’t seem to be helping much atm lol, when you look at the politicians and entrenched institutions but at least it’ll be easier to find answers when/if the masses choose to. And at least we can actually have the debate, the conversation that isn’t happening in the mainstream. The “debate” is so narrow you can barely get a sheet of paper between the supposed opposing sides, products of the same special interests, puppets of the same masters.

Ari

You’ve left out, entirely, the effect of foreign buyers on London house prices which I suspect has been the main driver of the capital’s continued performance since 2008. This would have been due to the weaker pound and, more recently, a flee from Europe.

City bonuses have already contracted markedly and so they certainly have not been driving London house prices for the last five years.

Dovile

Also don’t forget that On 1 May 2004 ten new countries with a combined population of almost 75 million joined the EU.

Roberto Birquet

Boris: Yer talking out of the wrong end of your body.If I was willing to pay anywhere near the prices that are asked for, I wouldn’t be able to anyway.House prices went up as exorbitantly as they did because banks gave everyone whatever mortgage they asked for. The result was the implosion of the banking system, and the subsequent bailouts mean millions are unemployed, having wages slashed across Europe, the destruction of public services, and Heaven knows what else. And all to keep banks solvent and people such as yourself claiming “this time it’s different”. Let the market (of which I’m not a believer, ruled by irrational masses and works far too slowly: boom then bust) do its business and there would be many thousands of repossessions being sold to the highest bidder, and then we would see real prices – as is starting in Spain.If I can’t afford a place by end of next year, I’ll buy abroad. Berlin, the US, Dublin, and by then Spain will all be rational places to invest in.

Roberto Birquet

BorisI studied history. I know we do not live in uniquely difficult times. But what has that got to do with the price of fish? The problem is the sense of entitlement of UK landlords.Bubbles have blown up before. This one just happened to bigger than others, and involved the world. The only way to maintain these house prices is by destroying the value of money. And I am not convinced that the authorities/bankers etc are not intent on doing that. Certainly, inflation has already eroded the real value of houses in the UK. Prices are down by 12-20% depending on which surveys you believe – let’s say 16%, and inflation has cut another 10-15%. So UK-wide prices are down 25-30% in real terms (valued in bananas, gold, shoes etc). But for me, prices were at least 40% over-priced. A 15% nationwide fall will suffice from here, but in London – what a bubble! But this destroying value of money will mean people do not learn the great mistakes. Your comments are evidence of that.

Boris MacDonut

#53/#54 Roberto.These arguments are tedious. I too studied….and still do…history. The point I make is about the COST of buying a house using a mortgage over 25 years,not headline prices. The Price at today’s date is only relevant to cash buyers. I stand by my comment that Prices should ease by 2% to get back to the long term overall Cost to Income ratio.

Andy

2% LOL!!The only reason that we’ve not seen bigger falls in property is because the government is suppressing interest rates in an effort to try and keep the over indebted bankrupt party/economy going. The banks are all but insolvent, and the consumer is up to his/her eyeballs in debt, with inflation dragging them down further. There are dangerous bubbles everywhere, and anyone who cannot see the one in the property market plainly needs to go to specsavers!

Boris MacDonut

#56 Andy. Sales volumes up, prices up , repossessions falling to lowest since 2007, lending up and no prospect of even a 1% base rate until 2018. Massive demand from cash buyers from abroad. Where is the collapse going to come from? Nearly 2,000 days now since the doom mongers said it was all going to collapse and we’ve seen a gentle moderation of 16% over 64 months. Dream on doom sayers.

Paul

#57 – Boris… your last comment sums it up. You think we’re doomsayers but you miss the point. This country desperately needs a housing collapse. The side-effect of all the efforts to keep the bubble inflated is killing our economy. The doom is not allowing houses to crash in price so in my view… you’re the doomsayer.

However, I think you may be right… it seems TPTB are prepared to countenance any outcome no matter how bad, as long as house prices are kept up and people are tricked into continuing paying the mortgage (or even just the interest on them). As long as the banks survive, the rest of us can go to hell.

Boris MacDonut

]#58. Hahaha.You think I might be right. Of course i’m right and luckily modest too.

Don

The one thing I know about the future of the market (be it houses, stocks, gold etc) is that I don’t know the future of the market. Even if one takes the view that property is expensive and over-priced, it doesn’t mean to say that it can’t get more so.

Don

The one element about house prices is that they do need to remain relatively affordable. They, therefore, have to be linked to salaries. Why? Two-fold: firstly, if someone wants it as a place to live they need to afford it and this will be a measure of their salary; alternatively, those buying the property as an investment need the income generated to match their expectation. The income generated will be linked to the renters income. A potential hurdle for house prices may be when interest rates rise. Can rent be increased to match the new return requirement or do prices need to fall?

Boris MacDonut

#61.But Don, interest rates will only be at 1% in 6 years time and maybe back to 4% in 10 or 15 years. Japan’s lost decade is now 21 years old.

Romford Dave

Perhaps everyone is right, in their own unique way?

Houses not worthy of the much vaunted mansion tax continuing their downward trajectory as ugly ghettos of two up two down become the staple abode of the masses, leaving foreign buyers, armed with ever valuable non sterling currency snapping up premium properties for ever more inflated GBP prices, which combine to keep average prices seemingly stable.

Not a pretty picture of life in Britain and maybe the real cost of the house price boom as a service economy deteriorates into a servitude one.

Wanna buy a cheap house?

Get out of sterling for a couple of years.

Don

61. Boris, true, low long term interest rates with low inflation a la Japan would allow the prices to continue on their merry way. By the same token, if inflation takes off then a reversal (especially in real terms) may take place (How will that x% (insert relevant figure) gross return look when inflation is up in this realm and you can’t squeeze more from the tenant?)

As per point 60, neither route is certain. You place your bet and take what you’re dealt.

jack

It’s a 50 50 bet,

If the BOE manages to hold in a fine balance then we are the next China.

But if QE takess off then inflation will sore and intrest rates will be forced up.

Your money (85K) is at risk in the banks (guaranteed to get it back, but when?)if your not swift enough to take it out in time and reinvest in property!

Property could fall upto 40%

Paul

#29 – Boris – I’ve just spotted a flaw in your reasoning for cheap house prices. It lies in the fact you’re asking us to consider the cost, spread over 25 years yet conversely your view on interest rates is short-sighted.

You think houses are cheap or affordable now because interest rates are so low but anybody not already 4 years into their mortgage bought it at inflated prices. Those people are not getting a cheaper rate now on the price it was years earlier. Prices have already moved inversely to low rates and cheap credit.

Over 25 years… a 200K mortgage @ 4% is roughly equal to a 100K mortgage @ 7% with the exception that the initial deposit is likely to be much bigger since 100%+ mortgages are a thing of the past.

Paul

cont…

If it were possible to get a 25 year fixed term mortgage and lock-in a rate, then you could compare that 200K house of today with the same house at 100K a few years earlier. But most fixed mortgages are less than 3 years and cost considerably more. And since not all of the rise came from lower interest rates (rather a lot was due to lax lending standards and monetary expansion via fractional reserve lending), I submit that prices have risen more than the drop in interest rates that people actually pay alone could account for.

I do think the BofE will hold down interest rates for as long as possible but I don’t see it lasting for 25 years and just because they do does not mean that banks will continue to roll-over mortgages at a fixed percent over the base rate. When emboldened by stronger balance sheets, thanks to government largesse no doubt, they could simply widen their spread. 75% of mortgages are variable rate and any existing contracts they have a very short-term.

Paul

cont…

So with that in mind think of the risk at today’s prices. The risk of rates rising from very low levels is orders of magnitude greater than rising from high levels. And… the leverage in the rise needs to be considered. A 500 basis point rise to 12% from a 7% rate is a 70% increase. From 4% to 9% is a 125% increase.

Anybody relying on interest rates to be so low would be absolutely ruined if they did rise considerably.

Admittedly that does not seem likely over the next 5 years (with the caveat of widening spreads) but it’s hard to make the case they couldn’t rise over 25 years from these historic lows.

Caveat emptor!

Andy

Quote, Boris #57 “#56 Andy. Sales volumes up, prices up , repossessions falling to lowest since 2007, lending up and no prospect of even a 1% base rate until 2018. Massive demand from cash buyers from abroad. Where is the collapse going to come from? Nearly 2,000 days now since the doom mongers said it was all going to collapse and we’ve seen a gentle moderation of 16% over 64 months. Dream on doom sayers.”

Sales volume up, but DOWN on 2007, prices up but DOWN on 2007, lending up, but DOWN on 2007. ‘Massive demand from cash buyers abroad? Sure, some in London, but not Rotherham! (No disrespect to anyone in Rotherham!) A ‘Gentle’ moderation of 16%, ha ha, more than that if you factor in inflation which negative interest rates do not counter. As I’ve said before Boris, prices might look as if they are stabilizing, but in inflation adjusted terms they are falling. I agree rates will stay low for a good few years yet, but as Paul has pointed out, not 25 years!Caveat emptor!

Boris MacDonut

#66 Paul. Yes, I accept your point. But it is possible to do the maths based on the average rate for the last 25 years and expected rates for the next 25 and pricers still come out about the same. What you actually pay in total over 25 years is the cost.#69 Andy. Why choose 2007? That was a rogue year at the peak of an unsustainable bubble. Try 2002 or 1992 as a reference point.

Mark

I think the title is right – get ready for a fresh slide in British house prices. Timing is everything. #65, #66, #67 , #68 are on the right tracks – interest rates are at an all time low & supporting house prices. This paradigm won’t continue for ever & what will happen to house prices when int rates rise? Will rents be increased to match the new return requirement, or will prices fall? I suspect house prices will fall. If you are in your 30’s prices are unsustainable and you should be wishing for higher interest rates, as are the recently retired. I suspect Boris is in his 50’s……..Caveat emptor

Boris MacDonut

#71. No, I am not.

Le Brit

I don’t know where Mr MacDonut lives, it certainly isn’t UK, planet earth. House prices are way out of kilter with average earnings all manner of stats can be shown to prove they are not, that’s what politicians do all the time. I base my view on real life, in the mid sixties my father on an average salary could afford to buy two large terrace houses one for the family one for renting. Fast forward to now a person wanting to buy one of the properties would have to find a deposit of £43k in order to finanace the balance on a mortgage of 3.5x average salary not do able. I imagine its the same down in the Smoke. When the AAA goes as it will because of the debt problems ( government and personal) rates are bound to rise and the chickens will come home to roost in a cheaper home.

jack

#71 mark.

Dont you know you should never to ask after a ladies age?

Biased isnt the name, nor is it Boris, is it Vanessa?

Boris MacDonut

#73. Good grief Le Brit. Everyone knows I live in Cheddar. Your dear old dad must have been better off than “average”. House prices in 1966 were £3,850. So he bought nearly £8,000 of properties on the then average pay of £15 a week (£780pa). Well done him. He either got an inheritance or he lived somewhere cheap as chips….like Wales.

Boris MacDonut

What everyone seems to ignore is their own sense of self-entitlement, their own pathetic neediness. We do not live in uniquely difficult times. It has always been a struggle to buy houses, it always will be. The difference is the needy whineing modern buyer who expects to get the moon on a stick. Knuckel down, grow some, get on with it and stop moaning.

Critic Al Rick

Oh, so according to what is stated @ 75. you’ve moved recently then Boris. When I suggested you lived in Cheddar you said not but that you liked cheese.

So then, talking of self-entitlement as @ 76., I don’t suppose your stated recommendation for the Govt to invest in the construction of a road tunnel under the Severn estuary as part of its infrastructure expenditure (at effective cost to the Truly Private Sector) to ‘boost’ (i.e. temporarily and artificially boost) the economy would be anything to do with self-centred interest?

No, of course not!

Another apparent anomally; I could have sworn you have within the past year stated yourself to be in your 50s, at variance with what is inferred @ 72.

However, Boris, I am beginning to think you may be correct with your assertions regarding the foreseeable future of nominal house prices; the eventual and regrettable contributory cost – the loss of any remaining vestige of freedom for most if not all of the 99%.

Boris MacDonut

#77 Rick .You know full well that due to work restrictions I, like manyon here, must remain anonymous. The name is that of my favourite Latin master at Repton and the location that of my favourite bar snack. Just like you are not “Rick” through a love of hay or “Al” due to an admiration for the fat diner owner in Happy Days.

Cynic Al Rick

Sounds like another red herring to me!

dave macbiscuit

Sorry Boris. I bought my first house in 1983 (Derbyshire) for £18,500. The 15k mortgage we took out was exactly our joint income, we were both low-ish paid office workers aged 25 at the time. The same house sold for £140k last month. Please don’t try and tell me that houses are only 2% higher than any type of norm, median or any other statistic. The hard fact is that any 25 year old couple trying to buy that house last month would have had to have a 3-4 times salary multiple mortgage. that’s the reality of the labour market. Housing is more expensive – Fact. Housing is too expensive – fact. House prices will, eventually, fall once the balancing act runs out of steam.

Realist

Agree with other comments, until interest rates rise, no one is forced to sell, so I can’t see prices dropping. Low interest rates maybe bad for the economy, but the government can’t afford to have any higher rates than there is now. That doesn’t mean that there maybe a situation that arises where rates have to rise, so even though house prices are stable at the moment, further down the road, prices will eventually come down, even if it’s 5 or 10 years time.

Mark

No one in their 20’s or 30’s has similar views on property to Boris. Av first time buyer is now aged 37-38? In their 40’s the support might be marginal, but those in their 50’s will probably share Boris’s views on property as they like he have lived through 30 golden years of trading up & making money each time. Dave in #80 has just shown us the problem. Extrapolating his figs forward; Av house price NOW c.£160k. 80% mortgage £128k. I am not sure where they would find the deposit of £32k, or is it likely that 2 people in their mid 20’s are going to have combined earnings of £128k.Fact. Housing is too expensive – fact. House prices will, eventually, fall once the balancing act runs out of steam.

Andy

@#70 Boris MacDonut, “#69 Andy. Why choose 2007? That was a rogue year at the peak of an unsustainable bubble. Try 2002 or 1992 as a reference point.”

OK Boris, in 1993 (the year after 1992) I bought my flat, I paid 25% deposit, and borrowed 3 x my salary to make up the total. £42500 total. Today at the ‘market’ price I could not afford that flat using the 3x salary! Average real wages are being drawn down by inflation meaning there is less for housing. In 1992 the national debt was about 28% of GDP, it is now 75% including the bank bailouts. We will all be paying for that via inflation, austerity and probably VAT up to 25%.House prices to to rise in real terms. Boris you are disillusioned!

Andy

Sorry, Firefox has put the wrong word in! I meant Delusional!

Boris MacDonut

#80 dave.Your personal experience is no proxy for the general picture. Are you sure it was the “same house”.No improvements like central heating or loft extensions? The average HP in 1983 was £27,200 and income was £8,800. The potential cost over 25 years with an 80% mortgage at the then 13% (allowing for MIRAS) was £58,000 or 6.6 times income. As it transpired rates fell and so the outcome was better. Now the rate is 7.4 times so the average house is about 13% dearer,but the average house is a better house today.For your example the 25yr cost was £42k or 4.8 times income, that “same” house today would be 5.7 times making it indeed 19% more expensive. 1983 was a relatively cheap time to buy.

Boris MacDonut

#82 Mark. It is rude to specualte on age. I have a year or two to go before making 50. My first house was bought in late 1988 and I made no real gain on my property until around 1996 due to the property slump. I stand by previous comments about the impatience and short termismof today’s young buyers.#83 Andy. All your vignette shows is that you were relatively better paid 20 years ago when you bought a flat costing 66% of the average on a wage that was 60% of average. Also remember the 28% debt in 1993 incurred interest at 11%. The 75% today is at 1.6%.

Boris MacDonut

#84 Delusional?? I fight very hard against such possibilities by looking at a range of cold hard facts and taking a weighted average. The closest figures going back to 1945 are the old DCLG.It is disingenuous to point the finger when you are relying almost solely on personal experience as your guide. Might I suggest you may be very poorly informed?

Romford Dave

Boris it’s all about perception.

For sure, at this precise moment in time, the cold hard facts you ably rely on, are as you say.

They may go on to be true for as long as we both shall live for neither of us can predict the future, not with any certainty anyway.

The biggest difference between now and 30 years ago of the 50 years I’ve had on this Earth (age reference for Mark, he seems to use it in his data compilation), actually scrub 30 and insert all my life, is for as long as I can remember the common perception was that property can only go up whereas now the complete reverse seems to be the case.

They say you can’t fight the fed, but equally you can fight your head and if it’s telling you not to, generally you don’t. My head tells me that the spike in house prices since 2001 is untenable and will eventually revert to mean, how that form takes is yet to be played out.

The good news is that neither of us are too old to see what comes to pass.

Boris Macdonut

#88 Romford Dave. I totally agree. The spike from 2002 is of no use as a point of reference. That is why I try to look at a much longer term. Since 1972 2,650%, since 1982 730%, since 1992 205%, since 2002 48%. My figures (no gaurantee) point to 2022 at 25% higher than today…around £238k average, with 2032 at £300 up 57%……but these are best informed guesses. By historic standards a 57% rise in 20 years is modest but equates to £107 a week for the next 2 decades.

Andy

@#86 Boris MacDonut #83 Andy. All your vignette shows is that you were relatively better paid 20 years ago when you bought a flat costing 66% of the average on a wage that was 60% of average. Also remember the 28% debt in 1993 incurred interest at 11%. The 75% today is at 1.6%.

My salary was pretty much average in 1993, and it is now, so I’m sorry Boris I totally disagree that average wages are in sync with house prices. You are right that the debt in 1993 was serviced at a higher interest rate, and it is now serviced at a much lower ‘purchased’ rate, as the BOE buys all the gilts that no one else wants with printed money. They weren’t doing quantitative easing in 1993 were they Boris? That printed debt is finding it’s way into the system pushing up inflation and effectively shrinks salaries further!

Andy

Boris MacDonut #84 Delusional?? I fight very hard against such possibilities by looking at a range of cold hard facts and taking a weighted average. The closest figures going back to 1945 are the old DCLG.

The problem is Boris, you leave out many of the important cold hard ‘facts’.

Ellen

@Mark 82. I am in my mid 40s and, on paper at least, have profited nicely from bloated house prices. But, regardless of the endless stats from Boris, average younger people cannot afford average houses.

I have children who are expected to get into debt to the tune of tens of thousands of pounds if they go to university. Then they face a globally competitive job market – where they will be trying to command uncompetitive salaries – because – basic housing costs in this country are too high. QE is flowing through the economy to keep them high and are inflating the price of other essentials such as food and fuel making our workforce more uncompetitive.

It is not unreasonable for a person to expect their employment to pay their keep – but our monetary policy of ‘bailing out’ losers mis allocates resources upwards.

I would much prefer monetary policy to promise a better future for my children than protect the ill gotten gains of the housing bubble.

Boris MacDonut

#90&91.Andy. One important fact you leave out is what I actually say. I NEVER mention wages or salary. I refer to income. I am heartily sick of how many times this needs expalaining. Salaries and wages make up 65% of UK income. There are then:pensions,grants,benefits,windfalls,gambling wins,legacies,dividends,capital gains….and so on. INCOME is now at £33,600pa. It is income that buys houses and it is the income of the richest 65% of people at that. Your salary level is of little or no relevance either now or in 1993 (when we had just devalued by 18% coming out of ERM). Sorry to say your salary at £10,650 was way below average which was near£16,500 in1993. Could you tell us which facts I am leaving out, as it is impossible for me to know your personal circumstances however irrelevant they may be?

Boris MacDonut

#92 Ellen.Rubbish. You have ignored the average age of young people. In 1992 the typical young person left school at 17 or 18, now it is 20 or 21. They bought a house at 24 or 25, now it is 33 or 34. They had kids at 26, now it is 30. You are transposing your out of date expectations onto a generation that you singularly fail to understand. Things change. Your kids will live to be 85 or 90. Different priorities must be grasped and expecting the good old days to pertain is myopia. The stats I quote do not create the new culture, merely measure it.

Andy

Quote Boris MacDonut @ #93, Salaries and wages make up 65% of UK income. There are then:pensions,grants,benefits,windfalls,gambling wins,legacies,dividends,capital gains….and so on.Could you tell us which facts I am leaving out, as it is impossible for me to know your personal circumstances however irrelevant they may be?

Well Boris, firstly I think that you’ll find banks won’t lend on some of the ‘income streams’ you mention, particularly grants, and benefits. But the question of facts was there for you to answer, namely was the BOE doing quantitative easing in 1993?

Ellen

@94 Boris. You display far too much vested interest in the continuation of this house price bubble to be credible. You are obsessed with manipulating statistics to back up your arguments – but – you start with the answer and then work out how to get to it. You, dear Boris, are the speaker of ‘Rubbish’.

And, please, stop talking to everyone as if they have no recollection of what went on in the 1990s.

Monetary policy is structured to enable the asset rich, take more, and those who rely on their own labour, see the value of their hard work reduced through such loose policies that very many investors no longer trust our currency.

Boris Macdonut

#96 Ellen. I have no vested interst other than to burst the gloom myth. It has no foundation. The arguments follow from the factual statistics. I do not seek to use stats to justify anything other than the blatant and obvious truth of the matter. Go and look at the figures yourself. Houses are no more expensive , relative to incomes now than they were in 2002 or 1992 or even 1972 and for 1982 are 18% more expensive because 1982 was a cheap time to buy.#95 Andy.It is income that buys houses and therefore ultimately dictates prices. There is no law that says only wages can be spent on housing and only 11 million of 20 million homes have a mortgage secured on them. House prices are a function of all the money and all the houses available not just those you can afford.

jack

Ellen, Well said and like you my children are far more important than a greedy self obsessed landlord!

Mark

#Ellen I agree with every word you have said. Delighted that you are in the “lucky generation” who have benefited from rising house prices. It won’t (can’t) happen again to our children, whatever Boris says. He is nearly 50 – let’s say 47. He bought his first house in 1988 which is 24 years ago. 47-24 =23. Can anyone name anyone with children who can buy property in this current market at aged 23 -25 and get a mortgage without (huge, QE type ) help from the Bank of Mum and Dad?. It may have happened in 1988 but I don’t think it will happen in 2012. QED.

Don

I have found charts of long term (30 years) house price trends and UK house price to earnings ratios. The first shows real housing returns of 2.8% pa and the latter, a long term average of just over 4 times earnings. The first chart shows house prices below trend and the latter above trend at over 5 times earnings. These charts can be found under “October press release” at the link below,

Personally, as I am of the opinion that, on balance, prices will fall in real terms, I look for information that will contradict my conclusion. Ideally, I’d like to see the above charts over a far longer term. If anyone knows where these can be found it would be greatly appreciated.

Boris MacDonut

#99 Mark. I was 25 when WE (Doris and I) bought our first house with a £35,000 mortgage that cost £470 a month. Before that we paid £190 a month renting. To pay the massive increased expense we lived with very little furniture, a mattress as settee, no fridge or TV. I walked 3 miles each way to work to save the bus fare, as our mortgage represented 45% of our take home pay. It’s called making sacrifices and not moaning, just getting on with it. Ours was a harder working generation that lived with massive unemployment and the threat of nuclear oblivion. Stop carping.#100 Don DCLG always has the most accurate figures used to go back to 1931 but I note the Tories have limited the info to 1968 onwards for fear of folk seeing the truth.

Mark

1988.I assume you had a deposit (but let’s assume 100%) in which case you were being lent 2.1 times salary to get a mortgage of £35k

Let’s now wind the clock forward and take a 25-27 year old out of university with a job and a partner. Their parents may be called Boris & Doris. They are both doing incredibly well and have jobs paying c. £30,000 each. They are struggling with some student debt, large bills for food and electricity etc.Combined salary with bonus of £65,000. 2.1 times salary = £136,500 mortgage. What can they buy in the South of England without a large deposit from the Bank of Mum and Dad?I am sure they would be delighted with a slide in British house prices.

Boris MacDonut

#102.Mark. What a gargantuan chip you have on your shoulder, too great a sense of entitlement stemming from too cushy a life.When we bought we could only borrow 2.25 times our joint income, the maximum possible. To get this we had a series of interviews with real Bank Managers to check the efficacy of our assertions. The whole application process took 5 months. We had a hard saved deposit of 10%….like everyone did.We paid interest at 14%. You people are unlucky if you even pay 4%. So for a lender to limit one to 2.25 times joint as in 1988 would be daft. They lend larger multiples now, typically 3.5 or 4. The people you cite could borrow £210k . If they had the same level of nerve we did in our day they’d borrow it, get on with it and buy a place worth £235k. Stop moaning.Stop needing your flipping hand held.

Ellen

Boris – Are you making this up as you are going along? Maybe you were just a bad risk. I had my ‘mortgage in principle’ in my hand within a week of asking for it in 1990 and had agreed a 3 year capped rate at 10%, although my interest payment were much lower (apart from around Black Wednesday in 1992).

I was single and was allowed to borrow up to 2.5 times my salary. Lots of singletons I worked with were buying on their own.

The major difference between then and now is that very few people owned a second property as an investment. Now a great deal of people do and they are clogging up the first time buyer market. With the will from government, simple taxation policy could make this type of investment unattractive – but, for whatever reason, this government does not want to represent the interests of the under 30s!

jack

I dont think boris understands where this could lead us all.

The eurozone is on the verge of collapse and if that happens the EU will fold and all countries will try to make allies with anyone with holding power of food, fuel and military presence.Anyone left will be in pure desperation and will form new left wing goverments which will result in war.

Never mind the the fate of the under 30’s, what about our whole nation?

Allthough there is a bright side, boris’s London buy to lets will be raised to the ground!

Andy

Boris, I’ll ask you again. Was the BOE doing quantitative easing in 1993? To buy government and mortgage debt that would normally be financed at much higher rates? In the process creating more dangerous bubbles? The answer is either;a) Yes.b) No.???

Boris MacDonut

#104 .Ellen. Went and checked the documents. Applied 17 August. Monies released 1st December.#106. Andy. 1993 had no QE, we did not need it.QE is used to avoid deflation.1993 Interest rates were 10% but falling.

jack

Ignore It, but it is still the Truth!!!

Tax the the rich and the unjust before it’s too late!!!!!!!

Paul

#Boris, maybe you could have a LIFE rather than spending your evenings on google, copy and pasting figures to back up you vast knowledge on the housing market. If you know so much Boris, why are you on here every second of the day instead of enjoying a glass of fine wine and decent food (you must be rich being this clever), or you take the iphone to the dinner table with you? So Boris where do you see house prices going? Keep on rising? Until a studio flat in London is £600k? What goes up WILL come down, judging by the woefull house sales i would say im not the only one who thinks property is wildly overpriced when considering the economic and job related problems there are in the Uk.

jack

who care’s what happened 20/30 years ago!

It’s the future AND NOW that matters!

The way I see it you and boris are going to packing gun shells (growth for the rich) and living in a air raid shelter in 5 years time and still talking about yesterday

Andy

# 107 Boris MacDonut. #106. Andy. 1993 had no QE, we did not need it.QE is used to avoid deflation.1993 Interest rates were 10% but falling.

Boris at last! Exactly, QE is being used to avoid deflation, in among other things house prices! In 1993 interest rates were above the rate of inflation, and house prices had corrected to meaningful ratios. Banks were solvent, unlike now. QE is being used to distort rates to negative to prop up banks and house prices. My flat may well be worth the same money in 5 years time, but by then a litre of petrol will be £2!

dave macbiscuit

Boris, it was the same house. I went around last night to check. Admittedly I did install central heating ( £860) and three new windows (£520) and we built a new shed for all the ferrets and whippets. And, my personal experience is one that any one of my contemporaries could identify with. Even if I allowed your convoluted maths to stand you have to admit that a 19% real increase is still almost ten times bigger than your 2% increase. Interest rates were actually 8%, I still have all my old mortgage statements. Why should people have to wait until they are 38 to own a house? I got mine at 25, sure I had to work for it. The injustice is that our golden generation has inflated our assets out of reach of the next-but one generation. We will pay for it one day, probably when the next generations vote not to pay for our pensions, our healthcare and other ‘entitlements’ – along with the inflated house prices we have come to see as a ‘right’. Hence the pile of gold under my mattress.

Boris MacDonut

#109. How kind of you to be concerned about my quality of Life. I can assure you I have never copy and pasted any stats. I do all my own research ,not copy others. In the same spirit I have no Iphone, in fact i have no mobile device whatsoever, I see no point in them. I am a beer man, fine wine holds little appeal.I do not know where prices are going. I can only say if they pertain to the long term averages since 1945 they will double by 2042. 30 years is a very long time by historic standards. In the first place they should fall 3%, probably next year.#112.You must have read that rubbish book by Shiv Malik, Jilted Generation and you simply refuse to see facts only selfish discontent.

Paul

#113 – incidently, the Paul from #109 isn’t me! I’m the one from earlier in the comments.. lol

Boris, you are the only person I have heard who think houses are not less affordable. The apologists for the system acknowledge it, as do the detractors. The apologists actually think nominal asset inflation is the key to a recovery because they believe in the “wealth effect” which is nonsense. Sure, it may con more people into debt but more debt isn’t the answer. But they pursue policies to keep asset prices high.

I’ve read your arguments, I’ve seen your statistics and they simply don’t make sense to me. There are many studies showing how two wage-earners are now required to afford housing, leaving the family unit far more vulnerable to hard times. Yes… we do have an entitlement culture and everyone wants a “finished” house but it still doesn’t explain it.

Paul

cont…

Never before had conditions been so favourable to house price inflation. Greenspan put his foot on the pedal, and the newly created money flowed into housing. The story is a litany of events and policies designed to green-light loans and therefore boost money creation. We’ve all heard the details over and over… record low interest rates, liar loans, 125% mortgages, MBS, CDOs, mark-to-model accounting, forced lending through legislation. People deciding to get rich by flipping houses.

Now… in the US, where they have non-recourse loans they can walk away. Their bubble popped proving there was a bubble, contrary to popular delusion ..ahem… opinion. Our market tracked theirs (albeit slightly delayed) but didn’t crash when theirs did. Is that not proof ours is still in a bubble?

Paul

cont…

Sure… financial repression is eating away at the gap (incredibly destructive to the economy… hurting the people who did the right things) but they’re still too high and for people earning sterling, it’s no help. People are not asking for commensurate wage increases because they’re happy to have jobs!

Ultimately as I and others have said earlier, prices are a function of affordability. The UK economy is being destroyed… house prices can defy gravity for a while longer thanks to ignorant sentiment, low rates etc. etc. but there will surely come a time when even with those measures, things are so bad economically and unemployment is so high that people will be forced to stop paying their mortgages. At that point the banks will finally be forced to reckon with their “mark-to-fantasy” inventory to front-run the public’s desperation selling.

You’re the ultimate contrarian. Boris Macdonut vs the world!

Boris MacDonut

#114-116 Paul. I am no contrarian. Just prepared to defend my corner. I consider and repeat facts and draw my own conclusions from them. You seem to dislike what I say because it does not chime with your assumptions. Theye are not my statistics, they are statistics that I have provided for others to consider. Yes, it enrages some who are convinced we are heading for doom.I disagree. Houses are slightly less affordable now than in 2002 and 1982. It is a fact. Prices need to ease by only 3%.Why are households with two earners more vulnerable? That is two sources of income,two potential redundancies etc. With one earner you have only half as many chances to fall ill, unemployed etc. Two earners is now a fact of life. Much of my arguments are based on sociology,demographics and psychology as economics is fundamentally flawed.

Paul

#117 If both people are forced to work to afford the bills there is no failover, no redundancy built in. If someone falls ill or loses their job, they’re screwed. Back in the day when it only required one person to cover the costs, at least the other partner could go to work during hard times. And if they both chose to work, they saved a lot more.

From a macro perspective with such a large percentage of income flowing into unproductive assets like houses, there are much less savings ie. capital available for the economy, which money printing simply cannot make up for. It’s a recipe for disaster. The Keynesians and Monetarists are wrong. Savings build an economy and consumption is the reward, not the other way around.

One day… capitalism may actually be tried rather than blamed when we’ve never had it.

Don

113. Hi Boris, under your assumption that house prices double by 2042, is this in real or absolute terms?

Boris MacDonut

#119. Pound notes Don. £194,000 today. £390,000 in 2042. With incomes slightly more than doubling housing should get slightly less expensive. But we cannot predict demand from immigration, fecundity, falling death rates and higher living standards. It is a pound notes gain on the typical house of £125 a week for a generation. Modest by recent standards but not to be sniffed at…..oh and I have erred on the uber cautious side. It could be much better than this.

Boris MacDonut

….and another thing. If prices rise at only a quarter of the rate they did for the last 80 years in the next 30 years they will rise to an average of £550,000. £275 a week for a generation.In the short term the long term always wins.

Paul

>”The trouble with inflation is that it is like a bad dog. It doesn’t come when it is called. And when it does come, it comes on so fast it knocks you over. Then, it goes into the house and tears up the furniture.”

Boris MacDonut

#122 Paul. If we assume the same rate of rise as the past 80 years then by 2042 the average house wil cost over £23million. If it rises at double that rate it will be close to £50million and any debt taken on today will have withered to negligible. Buy a house, as I keep saying ,they are cheap.

Paul

#123 – the debt will only wither away if you can keep up! Wages are usually 12 months behind and any savings dwindle to nothing. It’s theft… plain and simple. Ultimately prices in fiat are an illusion. I sold my house in 2007 (partially because I knew I intended to move within 5 years) and bought gold and silver and in one way you’re right… when measured in gold and silver house prices have deflated a lot. Unfortunately, I earn in sterling so I’m content to wait because I reckon gold and silver have a lot more upside measured in sterling. Eventually I will buy a house.. when they are extraordinarily cheap measured in gold and property is a better alternative to holding what I believe is real money.

Don

A gain in monetary terms to GBP 390,000 from GBP 194,000 equates to growth of 2.35% per annum. Even if prices were GBP 550,000 it only equates to growth in the region of 3.5% per annum. Taking inflation into account then house prices would flat line over this term.

Working out the figures:Average rent is about GBP 712 per month (source: bbc news) & rent inflation of 3% per annum (assumption)If you have the funds to buy the house outright it would be better paying rent and investing the cash assuming a very modest return of 5%pa. In 30 years time you would have circa GBP 818,000 to buy a house rather than the GBP 390,000 or GBP 550,000 figures given.…

Don

…

Even if rents were GBP 1500 per month & rent inflation of 5% per annum you would still have GBP 764,000 to buy a house.

Of course, it could be argued that house prices could grow faster etc etc but by the same token I’d personally look at getting a minimum return circa 7% from investments over that time scale. This would leave GBP 1,400,000 with rent at GBP 1,500 pm & increasing at 5% per year.

Looking at it this way houses are not a great investment at current levels.

Don

..

Even if rents were GBP 1500 per month & rent inflation of 5% per annum you would still have GBP 764,000 to buy a house.

Of course, it could be argued that house prices could grow faster etc etc but by the same token I’d personally look at getting a minimum return circa 7% from investments over that time scale. This would leave GBP 1,400,000 with rent at GBP 1,500 pm & increasing at 5% per year.

Looking at it this way houses are not a great investment at current levels.

Boris MacDonut

#124 to 127. What a lot of ifs Don. I’m sure most FTB’s are amused by the “if you have the money to buy a house outright” bit. You forgot if you’ve got the time to manage an investment portfolio too…. and the psychological strength to take massive risks.

Andy

#128. Boris MacDonut. “What a lot of ifs Don”.

All of your thoughts and predictions are based on ‘ifs’ Boris. But I don’t think for one minute you are being realistic about the future. This crowded island is running out of reserves like North Sea Oil and Gas, we’ve closed our coal mines, we run a trade imbalance and we have a huge bloated public sector that no politician (who’s ever going to be elected!) has the guts to dismantle. Sure we can maintain house prices and other asset prices by various fiscal engineering policies so that in ‘pound notes’ terms they look good. That will keep banks and the likes of you and the other property bulls happy. But in the long run that won’t do UK plc any good at all!

Boris Macdonut

#129 .What are you talking about? I rarely if ever predict the future so cannot be accused of “ifs”. I only ever say if ratios pertain to those that dominated from 1930 to 2012 what might happen. I usually offer the caveat that nobody can predict the fute. Most of my posts are reminding those who don’t want to hear what actually happened in the recent past…..unfortunately so many have bought the doom agenda they protesteth too much.

Boris Macdonut

#130. Bit of a mistake in my last post. It is possible to predict the future, but not based on the past only on the present. I predict that David Trevor Cameron is to go down in history as the last ever Conservative Prime Minister. The toffs were supposed to ride to,our rescue after 13 years of Blalirs’s mismanagement. thye have messed up so badly that we can now draw a line under the the Tories just like we did with witchcraft beliefs.

Don

Ifs… Life is full of them.

The reason I started out with having the funds to buy outright was (apart from being lazy) to take out the unpredictability of borrowing (another if). Sure, with a 25 or 30 year fixed option the figures would be easy enough to establish but where do you get that outside the US. Typically, borrowing is more expensive than using savings so this was to work in favour of housing as an investment.

Don

128. Boris, it doesn’t take much time to monitor a well structured investment portfolio after initially setting it up.

“the psychological strength to take massive risks” – With targeted returns of 5% & even 7% this is low or medium risk investments. 10% returns would be high risk & “massive risks” imply speculating (not recommended in this instance).

Buying property is not risk free so the risk is easily comparable.

Boris MacDonut

#13 Twaddle. If it is so easy to make 5 to 7% with no real effort and 10%+ with a bit of a try ,why do Banks offer people 1% or less?

Andy

Banks are paying 1% or less because they are busy repairing their balance sheets after the sub prime debacle. Their investment arms are busy doing what Don has said, safe in the knowledge that they’ll be bailed out if they screw up, at least until they get hived off by another Glass-Steagall act!

Most western banks are fundamentally bankrupt, meanwhile anyone with any nonce and cash like Don will invest some of their wealth in the easy safe ride of blue chip dividends with some higher paying riskier ones thrown in for good measure. 5% is easy, forget housing, the maths does not add up.

Don

134. Boris,… because they can. The last time I checked banks weren’t altruistic in nature. When this changes you’ll find banks offering higher rates though I wouldn’t waste your time waiting.

Orb

Can’t believe this debate has been raging ALL through my holiday! And no-one is prepared to come to Boris’ defense even in part, so I will:

Two of our nieces (and their partners) – aged 20 & 21 – successfully became FTBs this year. Neither struggled for a mortgage or was ‘gazumped’. Each set a savings plan for their deposits and realised them. Both homes are sparsely furnished. Jobs: bank clerk, supermarket delivery driver, pre-school assistant & butcher counter service – all jobs paying WELL below Boris’ average income. So it CAN be done – stop winging, stop wasting money, put your shoulder to the wheel and PUSH! And be prepared to start in a different area.

However, I stand by my previous comment on another debate: the relative size of the deposit required is a bigger factor today.

(cont….)

Orb

(….cont.)

Boris’ downfall with sentiment may be in his choice to consider only averages. Both houses are towards the lower end of the scale (around £110k). A LOT of houses in many neigbourhoods are overpriced and it is these houses whose value will likely be eroded fastest by the continued fall in the value of money.

There are plenty of relative ‘bargians’ out there if you’re prepared to leave the safety of your keyboard & pick up a paintbrush!

Boris, I hope we meet one day on a debate about the impending crunch in future Government social obligations (pensions, NHS & benefits) and how that might affect the average person; I’d be interested to hear your average view on this

(Can’t find it again, but whoever pointed the finger saying Boris has no life as he’s always in these debates: How do you know that?? Pot calling the kettle black??)

Boris MacDonut

eep you humble and grounded.Personally I wanted to buy my first house in Bath. I couldn’t, so I bought in Manchester where houses (even in 1988) were 40% cheaper. When I finally moved south it was to a more expensive house and much smaller. A few folk on here need to grow some and get on with it ,as you rightly say. Drop the sense of entitlement and the certainties about the future.

Boris MacDonut

#138. Orb. I make no apology for using averages as averages take into account all the money available and all the people. It has a big distorting effect in housing.Only the richest 65% buy houses. It is not easy to ascertain the average income of the richest 65%.I do agree there is a social welfare crunch impending. Huge numbers are turning 65, 66 ,67 or whatever the Government say is a pensioner. There are more kids, more disabled,more 90 year olds. My honest opinion is Gideon is on a hiding to nothing . Accept the deficit will never be repaid. It has existed since 1692 and been as high as 260% of GDP. Just keep it at a manageable level and get on with it.

Orb

Boris @140, averages are good for generalisation, but not necessarily for practical use: an area with lots of skips & refurbs is on the up; one with boarded windows and closed down shops on the down…. it’s not rocket science.

“Only the richest 65% buy houses.” There you go again opening yourself up to criticism. I don’t know a lot of renters, but I know a lot of people who have houses at the lower end of the scale (£125k-ish) on lower incomes who hardly fit the ‘richest 65%’. And I’m sure most houses are of the ‘workers’ type – those at the lower end of the scale (say, sub £180k-ish?). It is areas like the London & the SE that distort prices (and incomes especially: I bet much less than 35% of the population are earning more than your average income!)

But I guess you are referring to averages again.

Boris MacDonut

#141 But equally areas like Shetland, Stoke, Hull and Blaenau Gwent distort things the other way. In the absence of a better model averages it has to be.

Orb

That’s fair enough if you can work competently with them, but it’s mathematical ‘models’ that the banks developed on a computer in a trading room somewhere that calculated they can significantly reduce the chances of Mr. Risky Borrower of Poor Avenue defaulting without ‘him’ knowing about it and when NONE of ‘his’ circumstances had actually changed at all!

#143 Orb. I agree the complicated maths argument,but I like averages for their simplicity. Even averages can distort over time. You may know folk on quite low incomes buying homes but the bare fact is that 23% of the UK population has less, often much less,than 60% of median income. That is well under £17000pa. How many of those buy homes? They correlate well with the 22% of folk who live in social housing.One problem is the rich have got richer. The very rich have got very richer and the poor are now much poorer. The incomes of those who buy houses, largely the richest two thirds is relatively higher than it was 30 years ago. This may help explain the increased cost to income ratio.

Orb

Boris @144, I must admit that as a ‘practical fellow’ and as my work requires, I tend to take a higher level view and seldom dwell on statistics specifics (my terrible memory offers no incentive either and your contributions in this respect are highly respected.

As has happened many times before, I had long suspected something like your statistics show (“23% of the UK population has… well under £17000pa”) and I’ll probably hang on to those specifics for a while in near term correspondence.

Time mag featured an article recently on London as the most unequal developed city in the world. As I work in finance, I have witnessed first hand the ‘very rich have got very richer’ phenomenon. As displeasing as it is, it is a macro event and one that is hard to change as those least likely to benefit from the change hold the greatest sway!

But the poor cannot prop up the super-rich forever and all previous empires have fallen….

Gandalf

Opinions please …. i am in the very fortunate position to be able to buy outright a property of 120K (up North!) but am concerned i would be purchasing at a point when prices are destined to slide or at least deflate slowly over time. I currently have most of this in cash/ns&i bonds with interest of gross 3%. I currently pay rent of £425 a month with my partner contributing half. Would we be better sitting this out and growing the lump sum/interest on our savings till prices come down more or take the plunge – its a difficult call i am having difficulty making ?? can anyone do the maths ?

Gandalf

Sorry rent should read £475 per month ! I intend taking on the house ‘to live in’ not as an investment but in certain scenarios i may get ‘more bang for my buck in a few years time’ ?? !

Orb

Gandalf @146, at a best guess, I’d expect interest rates and nominal house prices to remain roughly static (a £150k house today is likely to still cost £150k in a few years time, even though the cost of most other things has risen)

So one way to look at it is: currently, your £120k @ 3% is earning you £3.6k/yr. If you were to stop renting and buy, it would earn you £5.7k/yr (12x£475).

Rent will go up, and house prices may dip a little, but eventually – after many years possibly – they will start to rise again. As long as you intend to stay a good few years in the house, it would make sense to consider buying rather.

(Even if you moved and rented it out later, by that time rents may have risen further and thus increased the yield on your £120k ‘investment’)

Hope that helps some.

jackanory now there is another jack

Gandalf,

This is just Orb’s opinion and like many on this site it is varied in the outcome!

No one can predict the future and anyone’s opinion could be right!

I value ALL, but in the end it’s what you need in your situation that counts!

P.S – Orb you sound like a different person, dont you rent and rent out? like you said before “house prices are overvalued”!

Orb

Jackanory @149, still renting out and renting, but looking to buy now as rents have risen significantly over the last 2 or so years. We had to relocate recently and I can buy the same house for the rent I’m paying, so time to buy.

We’ll hold the property we already have; it’s paying a half decent yield against the best offer received so far (as is Gandalf’s landlord’s house!)

Besides, Boris says it’s a good time to buy

jackanory

Orb @150,

Boris is right about some things, but theres more to this than meets the eye and il give 3 more reason why.

1. I recently read that a London council is going to start charging full council tax to any property that is empty or a second home. How long will it take for all councils to take on this money spinner?2. The goverment is going to put limitations on how much banks can lend out to buy a home (I think it was no more than 4x your wage) starting early 2014.3. A property I fancied but decided was overvalued went to auction last month, I looked the results up the other day and found unsurprisingly it didnt sell and also 66% of all the properties at auction that day did not sell!

Orb you have a full back, but a first time buyer does not!

Orb

Jackanory, a response to each point:

1. Some councils already are: after a 6 month breather, full CT would become due on our empty property – the master criminal forced us into renting it! And, ‘second home’ is different to ‘second property'; I’d be happy to buy a property in someone else’s name if it benefits me!2. The govenrment, as always, is way behind the curve; and I have lots of cash 3. Well done you: the property WAS overvalued, as were 66% of them (assuming their (bank?) reserve prices weren’t met). I once made the winning bid on a ‘bargain’ property that didn’t exist in this way!

I’m not a property investor; I don’t want to hold more than one property at a time. As my post @137 indicates, FTBing CAN be achieved – life’s all about choices.

Orb

Also, Jackanory, I forgot to refer you to my post @138 in my post @150: I still believe some properties in some neighbourhoods ARE overpriced, but there are plenty of ‘affordable’ ones too (with yields as good as they are on our own property, it must surely be better to buy than to rent!) And rentals are most unlikely to go down.

I watched ‘Britain’s Hidden Housing Crisis’ on BBC1 last night… the attitude of some people is incredulous! If Boris saw it, he might agree it should have been called ‘Britain’s Hidden Entitlement Crisis’. Sadly those characters are endemic in our society; you simply cannot explain to them just how unbalanced their attitude is.

jackanory

Orb 152,

1. I think you got it wrong or didnt ask the right question to the right person. You can pay nothing for as long as you want as long as you declare your property empty, I already did it!2. The banks are already doing the govs job by only allowing most people to borrow 40%! And like I said you have a fall back!3. So we are agreed that there alot of deluded sellers out there!

I am in a simmilar position as yourself, but if I was a first time buyer now I dont think I would.

jackanory

con….154Their choices are to save a huge deposit and then buy in downward market, house prices are never going to be allowed to sore like they did and the chances are they would save thousands maybe even tens of thousands by waiting.orBuy a gov backed chicken coop new build which is never going to incease in value no matter what colour you paint it, and lets face it the builders are exploiting the scheme and charging over the odds. Just my opinion and I would advice anyone to make up their own mind

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